Minimum wage

Question 1

When was the minimum wage in the UK introduced?

Answer 1

Reintroduced in 1993 after it was stopped in 1993

Question 2

Why do younger workers have lower a NMW?

Answer 2

1. Lower productivity
2. Lower skills
3. Higher rate of unemployment
4. Early unemployment is thought to have large negative impacts on individuals

Question 3

Who benefitted from the NMW when it was introduced?

Answer 3

1. Women
2. Part time employees
3. Low qualified workers
4. Private sector
5. Non- union work places

Question 4

What does economic theory predict the introduction of the NMW would be on the economy?

Answer 4

• A high national minimum wage would increase unemployment
• high wages would increase supple and reduce demand

Question 5

How did UK unemployment change after the introduction of the NMW?

Answer 5

• Fall in U
  
  • BUT there was no counterfactual so we can’t be sure it wasn’t due to another variable changing

Question 6

Discuss the Uminimum wage research completed in the US

Answer 6

• Card and Kruger (1994)
• New Jersey vs Pennsylvania
• 1992 NJ MW rose
• They took a sample of fast food restaurants before and after the rise in MW
• Diff-in-diff analysis: showed no evidence for negative relatinoship, if anything there was a positive impact.
• Even when they went back checking for other variables that may have had an impact they found no negative relationship

Question 7

What study was completed in the UK to have a more detailed look into the affect of NMW on U?

Answer 7

• Stewart (2004)
• Compared the probability of getting employment for those directly affected by NMW and for those already above NMW (by a max of 10% above)
• The intro of NMW had no impact on employment probability
• The results were said to be in line with a dynamic monopsony
• Other potential causes were:

1. NMW too low
2. Adjustment of hours
3. Other variables - PPP

Question 8

How did the National minimum wage impact profits?

Answer 8

• Draca et al. (2011)
• Compared profitability for firms with a different proportions of workers reliant on NMW
• Study found profits fell for firms with low income workers by 7-11%

Question 9

How did the NMW impact productivity?

Answer 9

• Arulumpalam (2004)
• There was a significant increase in the level of training offered for low wage compared to high wage employees

Question 10

How did NMW affect prices?

Answer 10

• Prices rose relative to inflation especially for goods/services where employeed were on a low wage
• Link between high NMW and high Prices